The Questions are More Important Than the Answers

Tag Archives: Economy

I wrote this article on 1st January 2015!

The newly minted bond coins released on December 18th, 2014, are facing the challenge of being accepted by consumers who recently experienced hyperinflation of the Zimbabwe Dollar which was legal tender until 2009. The bond coins are pegged at 1:1 to the U.S. Dollar. It means with 100 bond coin cents; you get 1 USD equivalent. If that is the case, why are they being rejected?

First of all, consumers are still smarting from their experience with hyperinflation and this bond coin may be seen as the return of the ZWD despite assurances from the government that this was not the case. Is a hundred bond coins equivalent to 1 bond dollar? Remains to be seen how much the government is trusted in its word.

Secondly, the bond coins are only valid tender within the Zimbabwe borders which means they have to be changed into USD, South African Rand, Botswana Pula or some other forex, if one intends to import goods or go on holiday. If one designed to travel within a few days, they might reject the bond coins preferring other more trusted currencies. Effectively our forex ‘reserves’ are leaving the country where we can spend them thus benefitting the economies of those countries. Even when our shop shelves are stacked with goods, most of them are imported hence the foreign economies benefit. We have a trade deficit which means we import more than we export. As a result of this, we are losing forex inside the country.

This makes the introduction of bond coins suspect. When Gideon Gono was governor, he printed his way out of liquidity challenges and bought forex off the streets to fund import obligations. Because he was spending the forex outside the country, the only way to get more forex was to print more ZWDs.

The question is: will government slowly then quickly mint more bond coins then bond dollars and return to the previous hyperinflationary situation of early 2009? With an economy which is not performing, it’s reasonable to predict such an outcome. We need to produce goods and services to avoid losing money to competitive economies.

The government needs to craft policies that attract local and foreign investment. The current indigenisation policy is vague and political. It has failed to attract investment and must be revised urgently. There seems to be no consensus in government on the need to review the policy. ZimAsset is the government’s ambitious economic blueprint which not only lacks the upwards of USD40 billion funding but is also being implemented by a team which has failed to achieve previous fully funded plans such as ESAP. The 2014/15 budget statement by Patrick Chinamasa was unable to provide funding for the blueprint urging individual ministries to source their funding. With about 90% of the USD4.4 billion budget going to salaries, it’s small wonder the plan remains a pipe dream.

The introduction of the bond coins fails to address real economic challenges and adds to the loss of confidence in the government’s ability to revive our fortunes. It is an embarrassing policy intervention from a governor who has no currency to print his signature.

Central banks

Since I started learning about bitcoin as an alternative to traditional paper money, I have often wondered why we have come to accept banking as it is constituted today. There are lots of problems with the current banking system but we are so conditioned to it that we don’t consider it’s problems to be problems.

We accept all the problems with banking to be normal. Is it normal that a signed cheque should take days to clear? Why is it expensive to send money from the west to developing countries? Why do banks close at a certain time? Why is access to my own money controlled by institutions like banks and governments?

Central banks decide how much money to print and put into circulation. They are causing financial exclusion by their actions. Is poverty a conscious decision made by banks and those who control them?

There are many questions that need answers but most people have never thought to ask. We have never realised there are problems until bitcoin started solving them.

Fiat currency

Fiat currency is backed by the trust we place in the government issuing it. When we begin to lose trust in the issuing authority, then the currency crumbles like a deck of cards.

Fiat currencies have crumbled in many countries including Zimbabwe. The question is why? Why do we lose trust in government and central banks? Their decisions have caused financial exclusion. There are billions of people across the who are either unbanked or underbanked. The golabal financial system has failed to appreciate the value that these people bring to the table.

Cryptocurrency

Bitcoin is a financial disruptor. It is a peer to peer payment system without a central controlling authority. Anyone can participate including the unbanked and underbanked. Its value is derived from its network of users

Bitcoin solves all the problems that we are facing with banks and institutions.

You have probably heard of bitcoin. It’s a digital currency based on the blockchain technology. But who is the issuing authority of this currency? There’s no issuing authority. Bitcoin is generated by bitcoin miners. Bitcoin miners use powerful computers to carry out the mining. The computers use a lot of electricity to solve mathematical problems which are generated every time a bitcoin transaction takes place.

Okay let’s start again. What is bitcoin? Bitcoin is a crypto currency. And what is a crypto currency? It’s a digital currency based on encryption. And what is encryption? Encryption is the security mechanism based on cryptography. Cryptography? Yes. Cryptography is a way of ensuring secure communication so that third parties cannot compromise messages between the intended parties.

Bitcoin are shared on the internet and so it makes sense to secure them. The bitcoin is mined with security built in as standard. The technology behind bitcoin security is called the blockchain.

So the blockchain is a secure public ledger of every bitcoin transaction which has ever taken place. So how a public ledger be secure? Well, it means the ledger is only available to the people who have made those transactions. But how? By using cryptography, the Information on the blockchain is available to the owners of the transactions.

Okay, that will soon make sense. The best way to explain this is to compare the robustness of crypto currencies to the vulnerabilities of fiat currencies. Fraud is quite common with fiat currencies both electronically and physically. Crypto currencies are difficult to compromise. If you wanted to compromise a bitcoin transaction, you would have to compromise all the computers on the bitcoin network because the system works on consensus. We’re talking about trying to simultaneously manipulate thousands of computers that have high grade security based on cryptography. Good luck with that!

In other words, the blockchain is unshackle, yet! The blockchain is constantly under attack and the more it is attacked, the more secure it is becoming. It is becoming more robust as a result of attempts to compromise. Apparently some governments have tried to compromise bitcoin and failed miserably. But who knows. You can never say never with technology. I’ve never heard of a system which becomes more secure the more it is attacked.

What fascinates me is the technology behind bitcoin: the blockchain. It is dubbed the trust protocol and also the internet of money. It has applications across the entire economic spectrum. Developers are building applications on the blockchain from education, healthcare, and insurance, to banking and governance.

It will soon be impossible to rig or manipulate the votes after they have been cast. Imagine being able to vote using your smartphone with the confidence that your vote is secure.

The blockchain solves the problem of trust. It is designed with trust in mind. We have seen how the economy suffers if the people don’t trust the government. The blockchain takes away the burden of trust from human beings to a computer program based on cryptography.

The blockchain economy is an economy with inbuilt trust. As an educator, I’m monitoring the development of an application called academycoin. It is a payment system for educators and students based on the blockchain.

Here’s an example of how a musician can benefit from the blockchain. We know that piracy has been an issue and artists lose a lot of money because people can get their music for free. If the digital version of a song or album is released on a blockchain, it can have a smart contract which negotiates payment every time someone tries to use for anything. Educators could do the same with the resources which they create.

There’s a blogging platform called Steemit which is based on blockchain technology. I’ve been using it for about a week. It rewards bloggers for their articles and comments through a system of upvotes and downvotes. There’s a built in incentive to produce content and participate in conversation around topics of interest. It also has a video sharing platform called DTube.

There’s also a new social media platform based on the blockchain. It’s called the APPICS APP and it is soon to be released. I can foresee people moving away from platforms such as Facebook which reward themselves for the content which its users create. Herein lies the promise of the blockchain: to reduce inequality across the globe by rewarding people for their time, by paying people for valuable content no matter where they post it. Suddenly social media becomes a driver of economic growth and development. It is no longer a waste of time thanks to blockchain.

Crypto currencies promise to resurrect dead capital around the world. There are many people whose governments have compromised the wealth of entire generations of its citizens. Many people are deliberately economically marginalised for the selfish reasons of its leaders. Blockchain technology takes away the burden of trust from the government to the individuals.

The blockchain is a technology solution to inequality of income and of capital. We need to have a conversation about how we can build applications that will eliminate dead capital.

Physics and the Economy

We Take Too Many Things for Granted

Is there a link between physics and the economy? As a civilisation, we have reached a point where we take a lot of technological developments for granted. Films such as water would remind us of the importance of having a piece of land to grow food. If also watch Rango, you will appreciate a drop of water. Water World is about the abundance of water with no land and Rango is the opposite, lots of land without water. Scarcity motivates human politics. We find for the control of limited resources.

Our children are growing up in an era where they take a lot of things for granted. They have a new normal compared to what we experienced growing. Perhaps our parents also thought the same about us. I believe that the gap is much wider between our children and due to the speed of technological innovation in the last few decades. I wonder what our kids will say about their children? I had no access to computers until my early twenties. Now I’m experiencing cloud computing and perhaps augmented and virtual reality soon.

Some people joke to say that Maslow’s hierarchy of needs should be updated to include WiFi. For our children, scarcity is no longer the problem but abundance. We have to teach them to manage wealth. There’s so much to do and so little time to do it. We all have to manage abundance. Endless possibilities. We are tempted to do it all, but we don’t have the time. We have to specialise in our areas of expertise, to focus on our strengths.

Physics

I choose science because it allows me to find a context in everything that is happening around me. In science, we call them phenomena. We follow the energy. When energy changes from one form of energy to another form, the machine has to do some work. Work is the rate at which we convert energy from one form to another. When you are walking, you are working because you are converting the chemical energy from the food you eat into the kinetic or movement energy of your muscles and your body. In fact, when you are walking, you are pushing the ground backwards, and the ground is pushing you forward. We call this Newton’s Third law of Motion: to every action, there is an equal but opposite reaction. The effect of pushing the ground backwards reacts to pushing you forward.

Even when you are standing, you are pushing the earth downwards, and the earth is pushing upwards with the same force. If the force from the ground were less, you would sink into the floor, and if was more, you would propel upwards. There would be a resultant force causing you to accelerate upwards. The resultant force causes acceleration according to Newton’s Second Law of Motion. But what does the first law say? Newton’s First Law of Motion states that an object will continue in its state of rest or constant motion in a straight line unless an external force acts on it. In other words, the object will stay where it is unless a force acts on it in which case it will move, turn, twist, rotate, get squashed etc. If it is already moving with constant motion then if a force is applied, it will accelerate, decelerate or stop.

We measure work in joules. The greater the rate of energy conversion, the more the work is done. How about the speed at which we do work? It is called the power. We measure it in joules per second or watts. One thousand watts is one kilowatt. The word kilo means one thousand. When you study economic growth and development, you can think about the amount of goods and services produced by a country. The country needs the energy to do this. It needs to convert energy from one form to another to do work and produce goods and services. Nation states with abundant energy supplies can grow their economies. A country needs healthy citizens who feed well to be able to work.

Inequality

The biggest challenge humanity faces whether it’s rich or developing countries, is the unequal and unfair distribution of goods and services. Resentment causes conflict. We have entrusted politicians to solve our problems, and that is a problem. Politicians have to take of their personal needs and those of their friends and families first. It is particularly the case for emerging economies where the politicians are emerging from poor backgrounds, and they want to catch up with their international counterparts through the primitive accumulation of capital. They neglect science and technology as the drivers of economic growth and development. They focus on the collection of physical assets. They ignore entrepreneurship as the long term solution to wealth creation and distribution. Entrepreneurs employ people, so they need to be supported through economic policy by the incumbent government.

Embrace Science and Technology

The primary function of government these days should be the infrastructural development that only the state can mobilise. Individuals can only do so much when it comes to projects such as electricity generation and the transport network. Once the infrastructure is in place, innovative entrepreneurs can build businesses on top of that. Transport operators can move goods around the country; others can engage in energy distribution. We now have the added advantage of the internet and software applications. Evry individual now can tell stories about their areas of expertise. We can finally do the things that we have always wanted to do. As a teacher, I can open a school online and teach only the physics I have always wanted to focus on delivering.

The governments of emerging economies should embrace science and technology to drive economic growth and development. They should also promote and support entrepreneurship, and small businesses as these can transform into global corporations. For that reason, I will focus on being the ambassador of science and point out how science, technology, and entrepreneurship can drive economic growth and development, and hence bridge the inequality gap.

Networking is the New Currency

What if I told you that networking is the new currency? You can not do it alone. We all have different strengths in life, and sometimes we believe we have failed because we continue to try and fill what society has branded gaps in our skills set. Successful people have no time focusing on the things they cannot do. They find someone else who can do them. They hire the best people for the different skills they need to accomplish their goals. There is a famous cartoon which shows animals being asked to climb a tree. That picture demonstrates how individual animals like elephants will spend the rest of their lives thinking that they have failed in life. The truth is that they were asked to complete a task which does not play to their strengths. You do not hire a bus driver if you want to fill a programmer’s job. The education system has been failing people by prescribing the same curriculum for everyone. Although teachers will include differentiation into their lesson plans, it is still not enough as the teacher-pupil ratio is not sufficient to implement differentiation. We could easily differentiate using technology such as www.khanacademy.org, but the educational establishment is a business empire which is hard to disrupt without political influence.

Focus on your Strengths

In the animal cartoon example, the animals can complement each other if they each focus on their strengths. It is what society has always done. We have always relied on experts to do certain tasks. If we have plumbing issues, we call the plumber, and if it is electrical, we call the electrician. It has served us well for centuries. I think now we are trying to do too much and spreading ourselves too thin to the extent that it is not clear what we do exactly. Social media has added to the confusion because people present themselves as experts in areas where they are not experts. We are then surprised when we find out what they are doing for a living. But perhaps they are presenting their real passion on social media than going to do the boring jobs they need just to pay their monthly bills. The good news is that the internet has democratised wealth creation. We can focus on our strengths through social media and monetise the products and services that we create. We can network with other people to complement our shortcomings.

Provide Value for your Networks

Networking is now easy to implement through social media. A lot of people still underestimate the power of social media networks. The networks are the culmination of the evolution of communication through the internet. Professor Michio Kaku calls the internet our first planetary telephone system. We can communicate with anybody across the globe even if they speak a different language. So what should we do on social media to help us with networking? I think we should be bringing value to those people who form part of our networks. Value is the currency and trust go with it too. People have to believe in the value that you are providing. You need to build confidence in networking. When people know your strengths and how you can help them, they will be willing to come to you and pay you for it. But do people know what you do? Do you focus on your strengths? If you try to be like someone else, you may fail because that is not your strength.

You are a Media Company

Whatever we do in life, whatever our strengths are, we need to realise that we are all individual media companies. The internet and social media networks have provided us with the opportunity to take control of our marketing. Networking is a marketing business. You have to market your strengths. I think the best way to do that is to create actual products and services that people can see and evaluate. When they find value in the goods and services, they are likely to buy them from you. We have developed many applications that enable us to create or distribute our creations.

What is your Media Strategy

As a media strategy, I suggest that we use social media to either blog, podcast, or video blog. That means writing, radio broadcasting, or television. Blogging platforms like WordPress, facebook, twitter, Medium, allow us to blog. We can podcast on www.anchor.fm, SoundCloud, stitcher, and iTunes. We can upload video to youtube, Vimeo, Instagram, Snapchat, and Facebook. I have just mentioned a few of the prominent platforms for each of the three forms of communication. The ecosystem is vast and growing. Most of the applications are running on our smartphones do there are no excuses not to produce and distribute content. The ‘excuses’ industry is the biggest liability to economic mediocrity. You can run a printing press, a radio station, and a television station all through social media networks and the internet. I have seen Facebook pages attracting more attention than established media organisation because of the creativity that they are providing.

Here is How I Do It

Let me give you an example of how I use social media to add value to other people. I write a minimum one thousand words a day for a blog post like this one. I use an application called www.grammarly.com to check for grammatical errors and ensure that my article is readable. I then publish the article using www.wordpress.com. For pictures I use www.pixabay.com. For graphics I use www.canva.com. Once I have published the article, I share it to my facebook page, my twitter handle, and my LinkedIn profile. I use Facebook Instant Articles and Google’s Accelerated Mobile Pages (AMP) to increase the speed at which my web pages open on mobile devices. A lot of people are consuming content on mobile devices, so this is good value for my network. I then use the same blog content to produce my podcasts using either www.anchor.fm or GarageBand for iTunes. I also use the content for platforms such as Snapchat and Instagram. in the evenings I do a screencast using ScreenFlow by www.telestream.netfor my youtube and facebook video. In my content, I try to talk about what I do or what I have done. Recently I have started to repurpose my blog posts into monthly e-books which I will convert into a book at the end of the year. I intend to turn one of the books into a movie one day.

I have given this example as an edupreneur but you can something similar whatever you do.